EQUITY MULTIPLIER (EM) shows the amount of assets owned by the firm for each equivalent monetary unit owner claims held by stockholders, i.e., the equity multiplier measures how many dollars of assets an institution supports with each dollar of capital. If a firm is totally financed by equity, the equity multiplier will equal 1.00, while the larger the number the more highly leveraged is the firm. EM compares assets with equity: large values indicate a large amount of debt financing relative to equity. EM, thus, measures financial leverage and represents both profit and risk measurement. EM affects a firm's profit because it has a multiplier impact on Return on Assets (ROA) to determine the firm's Return on Equity (ROE). EM is also a risk measure because it reflects how many assets can go into default before a company becomes insolvent. The EM ratio is best compared to industry averages. Formula: Total Assets / Net Worth
PURCHASE AGREEMENT is a contract stating the terms of a purchase.
UNREALIZED is an event having occurred but not yet reflected in a transaction. This refers to unrealized gains and losses, which have not happened but would happen if the investor sold the security or asset that an entity currently holds. Unrealized gains are not usually taxable. It is the opposite of realized.
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